APPD Market Report Article

Kuala Lumpur

August 26, 2022

YY Lau, Country Head, Malaysia

0.6%

MYR 32.7

Rents
Rising

Retailer expansion continues amid market recovery

  • Footfall remained elevated and retail sales improved, propelled by Hari Raya Aidilfitri celebrations in 2Q22. Retailers in both the city centre and suburban submarkets remained upbeat, and have revised their revenue forecasts in anticipation of increased retail spending and stronger tourist presence come 4Q22.
  • Several retail subsectors, such as electronic gadgets and appliances, home appliances and computer games, have thrived in this quarter. This can be observed in new malls such as Pavilion Bukit Jalil Mall, Mitsui Shopping Park Lalaport Bukit Bintang City Centre, and Mitsui Outlet Park KLIA – Phase 3.

One new completion drives increase in Suburban stock

  • The opening of Mitsui Outlet Park KLIA – Phase 3 contributed a total of 75,347 sq ft of stock to the suburban submarket. The new phase of the mall enjoyed full occupancy, with five anchor tenants – Adidas Factory Outlet, Puma Concept Store, Nike Unite, Objet and Courts.
  • In 2Q22, the city centre submarket vacancy rates decreased slightly to 17.1%, due to stronger retail demand and the absence of incoming supply in the quarter. All prime malls have reported over 90% occupancy rates, with some retail REITs reporting their mall occupancy rates already reaching pre-COVID-19 levels.

Local investors selling underperforming malls to recycle capital

  • Rents have continued increasing in the quarter in both submarkets, mainly because mall operators are granting fewer rental rebates due to high demand for retail space as well as stronger retail sales in the quarter. Due to increased operational expenditures induced by rising inflation, mall operators have transferred this cost to retailers by means of increasing rents.
  • More local investors have been putting up their underperforming malls for sale compared to those seeking to acquire assets. The main reason underpinning this was to recycle capital for reinvesting in other developments.

Outlook: Strong retail recovery anticipated in 2022

  • Retail industry players remain upbeat based on strong sales recovery, as tourist expenditures are expected to contribute significantly to retail sales come 4Q22 due to an anticipated surge in international tourist numbers in preparation for the year-end festivities.
  • However, retailers are likely to remain wary amid rising inflation, which continues to weaken consumer purchasing power, evidenced by escalating prices of basic commodities. This is likely due to supply constraints, resulting from global food shortages triggered by climate change, the ongoing conflict in Eastern Europe and China’s zero-COVID policy, which will likely disrupt the Malaysian market.

Note: Kuala Lumpur Retail refers to Kuala Lumpur's prime retail market.

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